Japan is at risk of fading from existence

There's a village in Japan where the dead outnumber the living, and I don't mean the ancestors in the cemetery. The bodies are dispersed around the small town of Nagoro.

It's a small community of some 35 people, most in their 60s or older. The place is so sparsely populated that the locals consider their 150-plus dead a part of their community.

OK, so they aren't literal dead bodies. Instead, the locals erected scarecrow-like figures in their likeness. Scarecrows fill the schoolhouse whose students long since graduated. They wait by an old bus stop, even though there's no bus to pick them up.

For the residents remaining, they replace the memories of those that have either passed away or simply moved away.

This is a stark example of Japan's most systemic issues.

With all of the problems in Europe and China, the troubles in Japan have been forgotten for the moment. However, their issues are far greater and there are no obvious no solutions.

Among Japan's biggest problems is a disproportionately large elderly population. That's not going away anytime soon.

The country is in desperate need of an economic upheaval. Yet no matter what Japanese Prime Minister Shinzo Abe does to reform their economy, they only amount to small changes.

Japan's Prime Minister Shinzo Abe bows at the end of a news conference at his official residence in Tokyo June 26, 2013 REUTERS/Toru Hanai

The first arrow he fired in his three-arrow approach to revitalize the economy involved printing new yen with abandon. He was trying to push down the value of the currency, and it worked like a charm - it drove the currency down by 40%. Japanese companies selling cheaper exports raked in profits.

So far so good - but little of it flowed down to workers.

The second arrow involved a lot of government stimulus spending, like building bridges, tunnels, and earthquake-resistant roads - but the effects on the economy have been modest. Government spending did not lead to a buildup in private investment.

The third and final arrow calls for structural reforms. Those won't happen until Japan stands at the edge of ruin. Changing the way business is done, particularly how companies hire, fire, and interact with workers, seems close to impossible. Total dedication to the company might not be how young Japanese view the system today, but it is certainly how all of the aging professionals who still have jobs see things. It won't matter though. The structural changes won't fix their bigger issues.

For all of the money and effort poured into shaking up the Japanese economy since 2012, the economy fell back into recession at the end of 2014.

The one positive sign was in May of this year. Household spending jumped by 4.8% over April. Unfortunately, that was the first positive reading in 14 months!

Japan can't seem to get out of its own way. As of yet, no one has found a solution for the problems that ail them.

25% of its population is over 65. The birth rate remains stuck at roughly 1.4 children per woman of child-bearing age. That number would need to increase to two simply to replace the parents.

In terms of overall population, Japan has been shrinking for years.

In 2014, about one million children were born, but more than a million people died. The country shrank by 268,000 people last year, following a decline of 244,000 in 2013. The population has fallen every year since 2004 and shows no signs of stopping anytime soon.

By 2060, research shows the population will have fallen by 30%, while the percentage of people over 65 grows to 40%.

There are no plans of how to handle this eventuality.

The Chief Cabinet Secretary suggested that if the elderly moved out of expensive areas such as Tokyo, and took up residence in remote villages that have been shrinking, the cost of care would decline.

That's a great idea on paper, but in reality few people in their twilight years want to uproot and move to a distant place where they have no relatives or friends. Besides, no one's suggested how to pay for new facilities, staff, and treatments that would be necessary in each town.

Japan technically came out of recession earlier this year, but I expect it'll will fall back again. However, this does provide us with investment opportunities.

Left without any good options, Japan's prime minister will probably devalue the currency again. Not long after the first time, we picked up a short yen position in our Boom & Bust portfolio that's up 125% over two years. I expect it will gain more ground in the months ahead.

Beyond that, there's also the opportunity to ride the Japanese stock market higher, since the central bank is buying shares to drive up share prices.

None of this will put the country on the right track, but we have a few suggestions for what it could do. Massive immigration might help, but the Japanese are very anti-immigration.

Many wonder: "What's going to happen to Japan?" Simple. If things remain the same, the country will fade from existence.

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